Saturday, January 5, 2013
New York Times: Inquiry Into Tech Giants’ Tax Strategies Nears End:
Congressional investigators are wrapping up an inquiry into the accounting practices of Apple and other technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.
The Senate Permanent Subcommittee on Investigations inquiry now drawing to a close began more than a year ago and involves at least a half dozen technology companies, according to people with firsthand knowledge of it, who declined to be identified.
Those people said the subcommittee had subpoenaed or otherwise asked the companies to explain methods they used to avoid domestic taxes. They said Apple had become a focus of the inquiry and was cooperating with the subcommittee, which is expected to issue wide-ranging recommendations that are likely to play a significant role in Congressional tax code negotiations.
Apple’s domestic tax bill has drawn the interest of corporate tax experts and policy makers because although the majority of Apple’s executives, product designers, marketers, employees, research and development operations and retail stores are in the United States, in the past Apple’s accountants have found legal ways to allocate about 70% of the company’s profits overseas, where tax rates are often much lower, according to corporate filings. ...
It is unclear how broadly Senate investigators are looking into the technology industry, if any laws are thought to have been broken and how many companies are involved. The subcommittee is also known to be looking at Google, Hewlett-Packard, Microsoft and firms in such fields as biotechnology. The subcommittee, which is overseen by Senator Carl Levin, a Michigan Democrat, has been interested in the impact on the budget deficit of offshore tax strategies. ...
Almost every major corporation tries to minimize its taxes. However, technology companies are particularly well positioned to take advantage of tax codes written for an industrial age and ill-suited to today’s digital economy.
Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft emerge from royalties on intellectual property, like the patents on software. At other times, products are digital, such as downloaded songs or movies. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers.
(Hat Tip: Mike Talbert.)